Correlation Between Ferrexpo PLC and Rio Tinto

Can any of the company-specific risk be diversified away by investing in both Ferrexpo PLC and Rio Tinto at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ferrexpo PLC and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ferrexpo PLC and Rio Tinto PLC, you can compare the effects of market volatilities on Ferrexpo PLC and Rio Tinto and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ferrexpo PLC with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferrexpo PLC and Rio Tinto.

Diversification Opportunities for Ferrexpo PLC and Rio Tinto

-0.38

Correlation Coefficient

Ferrexpo PLC  Rio Tinto

Very good diversification

The 3 months correlation between Ferrexpo and Rio is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ferrexpo PLC and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC and Ferrexpo PLC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ferrexpo PLC are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto PLC has no effect on the direction of Ferrexpo PLC i.e., Ferrexpo PLC and Rio Tinto go up and down completely randomly.

Pair Corralation between Ferrexpo PLC and Rio Tinto

Assuming the 90 days trading horizon Ferrexpo PLC is expected to generate 4.15 times more return on investment than Rio Tinto. However, Ferrexpo PLC is 4.15 times more volatile than Rio Tinto PLC. It trades about 0.24 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.0 per unit of risk. If you would invest  4,000  in Ferrexpo PLC on September 20, 2024 and sell it today you would earn a total of  5,660  from holding Ferrexpo PLC or generate 141.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ferrexpo PLC  vs.  Rio Tinto PLC

Ferrexpo PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrexpo PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ferrexpo PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ferrexpo PLC and Rio Tinto

The main advantage of trading using opposite Ferrexpo PLC and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferrexpo PLC position performs unexpectedly, Rio Tinto can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Rio Tinto will offset losses from the drop in Rio Tinto's long position.

The idea behind Ferrexpo PLC and Rio Tinto PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Valuation module to check real value of public entities based on technical and fundamental data.